Do Managers Withhold Bad News Due to Career Concerns?
Dr. Weining ZHANG
Assistant Professor of Accounting
Cheung Kong Graduate School of Business
This study examines how CEOs’ withholding of bad news relative to good news varies with their tenure. As the market is more uncertain about CEOs’ ability in their early years of service and relies more on the information disclosed to evaluate CEOs’ human capital, we predict that CEOs have stronger incentives to withhold bad news relative to good news in the early years of service than in the later years. Consistent with this prediction, we find that the asymmetric market reaction to the management’s bad news versus good news earnings forecasts and the amount of news released prior to good news forecasts relative to that prior to bad news forecasts are larger in the early years of CEOs’ service than in the later years. These effects are weaker in firms with stronger monitoring of CEOs. We find similar effect of CEO tenure on the withholding of bad news prior to the announcement of dividend changes.